Finance: To salvage the economy, billions in deposits will be converted into pesos. But many fear they will lose money if paid in the devalued currency.

BUENOS AIRES — Three weeks after a wave of demonstrations brought him to power, Argentine President Eduardo Duhalde finds his administration at a critical juncture, caught between the demands of millions of his citizens and the expectations of the international finance community.

Every day brings a new protest in a nation beleaguered by unemployment and a banking freeze that has crippled economic activity. Hoping to lift the freeze and jump-start the economy, Duhalde is moving this week to convert billions of dollars' worth of deposits and loans into the nation's devalued currency, the peso.

Until last month, U.S. dollars could be traded 1 to 1 for the peso. About $45 billion in Argentine bank deposits--more than two-thirds of the total--were made in dollars. But with the peso now floating on the open market at about half its former value, the government is saying the banking system simply doesn't have enough dollars to pay all depositors at a rate of exchange that they would consider fair.

Acknowledging that the era of the dollar had ended in Argentina was such an explosive admission that the president first spoke of it Saturday night in an interview with a small news agency here. Depositors would be able to get their money from the banks, Duhalde said, but "not in the currency [the dollar] that isn't there anymore."

The government expects to detail its plan to "peso-fy" the economy in the coming days.

Officials at the International Monetary Fund expressed optimism Tuesday that Argentina is moving forward. The government is counting on more loans from the agency to help the nation out of its four-year recession and fiscal crisis.

"It is legitimate that the Argentines take the necessary time to define a strategy that will last," the fund's managing director, Horst Koehler, said in an interview in the French daily Le Monde. "The IMF is ready to support such an approach."

A delegation from the fund was due in Buenos Aires on Tuesday to hash out a comprehensive rescue plan and to review Argentina's monetary and banking policies, as well as its 2002 budget. IMF officials have said the new policies must be in place before they can deliver an aid package.

Still, as Duhalde's government removes dollars from the economy, it faces the prospect of unleashing any one of a number of nightmarish scenarios.

A misstep could easily wipe out the savings of millions of Argentines or force tens of thousands of debtors into bankruptcy. The value of the dollar might skyrocket beyond its current value of 1.95 pesos.

Hovering over the heads of Duhalde and his advisors is the possibility of igniting a social explosion such as the one that brought down President Fernando de la Rua on Dec. 20.

Every day sees a new cacerolazo, the banging of pots and pans in protest by middle-class residents of Buenos Aires and many provincial cities. A national cacerolazo is planned for Friday.

"Don't allow them to rob you and bring down our country," reads one e-mail being circulated by Buenos Aires residents who are organizing the protests via a Web site, http://www.elcacerolazo.org.

On Tuesday, a group of protesters that included senior citizens surrounded a Lloyd's Bank branch in the provincial city of La Plata.

Many Argentines fear that the government might convert their dollar deposits at a 1-to-1 value, in effect cutting their savings nearly in half.

Duhalde's spokesman, Eduardo Amadeo, said Tuesday that Argentines "will not lose the buying power of their money."

Sources close to the government say Duhalde's administration will likely model its conversion plan on a system used in Chile and Brazil, where authorities converted deposits--and loans--from dollars into a local currency based on a formula derived from cost of living indexes.

The crisis here has already dealt a crippling blow to the nation's banking sector, composed largely of American and European banks.

Emilio Botin, chairman of Banco Santander Central Hispano, said in Madrid on Tuesday that the Spanish bank had set aside a fund for probable losses in Argentina totaling more than $1 billion, nearly two-thirds of the equity it has here.

Botin made it clear that he was pressuring the Argentine government to act in defense of the troubled banking sector. He said the bank otherwise might abandon the country altogether--an option that several foreign banks are said to be considering--rather than invest more money here.

"Our presence in Argentina is subject to certainty of being able to continue developing our activities in a viable system," Botin said.

Times staff writer Chris Kraul in Mexico City contributed to this report.